What's considered a healthy debt ratio?

It varies significantly by industry, but a debt ratio below 0.5 (50%) is often considered conservative, while higher ratios indicate more reliance on debt financing and higher financial risk.

Is a lower debt ratio always better?

Not necessarily — some debt can be a healthy way to finance growth at a lower cost than equity, but too much debt increases financial risk, especially if revenue declines.

Debt Ratio Calculator

Calculate the debt ratio — the percentage of a business's total assets that are financed by debt rather than equity.

Total liabilities

Total assets

Debt Ratio

40%

How It Works

The debt ratio formula

Debt ratio = total liabilities ÷ total assets × 100 — a higher percentage means a larger share of the business is funded by borrowing rather than owner equity.

Example Calculation

A business with $40,000 in total liabilities and $100,000 in total assets has a 40% debt ratio.

Common Mistakes

Comparing debt ratios across very different industries — capital-intensive industries typically carry higher debt ratios as a matter of course.
Confusing debt ratio (liabilities ÷ assets) with debt-to-equity ratio (liabilities ÷ equity) — they use different denominators and aren't interchangeable.

Frequently Asked Questions

What's considered a healthy debt ratio?: It varies significantly by industry, but a debt ratio below 0.5 (50%) is often considered conservative, while higher ratios indicate more reliance on debt financing and higher financial risk.
Is a lower debt ratio always better?: Not necessarily — some debt can be a healthy way to finance growth at a lower cost than equity, but too much debt increases financial risk, especially if revenue declines.